A tale of two surveys

Summary

Better known as a source of official information on employment and unemployment, the Labour Force Survey (LFS) also covers a range of other labour market variables, including earnings. The introduction of the national minimum wage on 1 April 1999 will lead to an increased interest in LFS pay data. This is because it is much more reliable than the New Earnings Survey (NES), the primary official source of average earnings figures, when it comes to pay levels at the bottom of the earnings distribution.

To help readers prepare for the forthcoming focus on LFS pay information, we explain how the figures are collected and provide a critical summary of their main advantages and disadvantages. Our feature includes:

  • a pay specialist's comparative guide to the LFS and NES;

  • an occupational breakdown of hourly and weekly average gross earnings, based on LFS data held on computer, but not previously published in print format, obtained directly by IRS researchers; and

  • a series of charts illustrating the differences between the two surveys, based on published and unpublished sources of Government earnings statistics.

    Following the advent of the national minimum wage, we expect considerable interest - from the media, policy-makers and analysts - in the forthcoming LFS wage figures for the spring and summer quarters of 1999. Our feature will help IRS subscribers stay one step ahead of the game.

    • How will policy-makers and analysts be able to measure the extent to which employers are complying with the national minimum wage? The legal pay floor kicks in on 1 April at a rate of £3.60 an hour, for those aged 22 and older not undergoing formal training. A starting point for monitoring overall compliance will be the various series of official earnings statistics. But, even at this early stage, we can be sure of one thing: these sources of data will tell very different stories.

    According to a recent analysis by government statisticians1, the proportion of the workforce earning less than £3.50 an hour (10 pence less than the new pay floor) was:

  • 6.8% in April 1997, based on figures from the New Earnings Survey (NES) - the most well-known and widely quoted of the official earnings surveys; and

  • 14.1% in the spring quarter (March to May) 1997, as calculated from the Labour Force Survey (LFS) - until recently regarded as a poor relation in the family of government pay statistics.

    Roughly speaking, LFS figures suggest that over 3.2 million workers are likely to benefit from the introduction of the national minimum wage. By contrast, the NES appears to indicate that half as many stand to gain from the new pay floor. This is a massive discrepancy by any standards.

    In the same analysis, official statisticians attempt to reconcile the two data sources by taking into account sampling differences and the way the information is collected. Their conclusion provides "lower", "central" and "upper" estimates for the proportion of the workforce earning less than £3.50 an hour in 1997. These are 10.8%, 12.3% and 13.8% respectively. The "central" estimate of 12.3% is far closer to the LFS-derived figure of 14.1%, than the 6.8% gleaned from the NES. In other words, government statisticians' best guess on the numbers earning below £3.50 an hour is much closer to those obtained from the household survey than employers' survey. Not surprisingly, the officials conclude: "The LFS is preferred ... for estimates of the number of employees earning below a low threshold."

    Behind the figures

    Why is the LFS a better place to go than the NES for information on average pay at the lower end of the earnings hierarchy? The reason is very straightforward, and easily grasped by non-statisticians. The sample from which the NES is produced excludes a significant proportion of the low-paid.

  • The NES is largely based on a 1% sample of employees who are members of pay-as-you-earn income tax schemes - hence it leaves out most employees earning below the income tax threshold (currently £80.70 a week).

  • By contrast, the LFS is based on a random sample of private households, and collects pay data on all household members in employment (excluding the self-employed), regardless of whether or not their earnings are above the tax threshold.

    Many of those with gross earnings less than £80.70 a week are, of course, part-time workers. And for this reason the LFS is also generally acknowledged to be a better source of information on part-timers' earnings than the NES.

    On the face of it, it might seem strange that two of the main sources of official earnings data should be based on significantly different samples in this way. But the differences begin to make sense when the way the information is collected is taken into account.

    NES is employer-based ...

    A central point about the NES is that it is an employer-based survey. The sample includes people whose national insurance numbers end with a specified pair of digits. The Inland Revenue provides the Office for National Statistics, which compiles the survey, with the names and addresses of the employers and the names of the employees to be included in the survey. Employers then provide detailed information on the earnings, hours and occupations of those employees (see table 1 ).

  • Advantages: The benefits of this method of collecting wage data are manifold. Accurate figures are secured, from employers' payroll records, relating to a huge sample of employees. Not only does this mean that reliable estimates of full-timers' average earnings across the whole economy can be provided, it also allows detailed information to be produced on the levels, distribution and composition of earnings for age groups, occupations, sexes, industries, regions and even local labour markets. This ensures the position of the NES as the pre-eminent source of official earnings data (Pay and Benefits Bulletin 460).
  • Disadvantages: But the source of its strength is the cause of its weakness. Not only do those below the tax threshold fall through the NES net, but the survey's sharp focus on earnings data excludes other employee characteristics - including ethnic origin, trade union membership, length of time in current job, education, training and qualifications - to name but a few of the variables included in the LFS. It is therefore of limited use in attempts to provide a more rounded picture of how individuals in different earnings brackets fit into the labour market.






    • ... LFS is a household survey

    Information used to compile the LFS is collected from members of around 65,000 private households. Individuals who take part are interviewed five times at three-month intervals. Questions about earnings are asked during the first and fifth interviews. This means that, in any given quarter, two-fifths of the total sample will have provided pay data. LFS interviewers try to talk to each member of the household in person. Where this is not possible, information is collected by proxy, from another adult household member present at the time (usually a relative); around 30% of LFS data is collected in this way.

  • Advantages: The survey is the main source of official statistics on many aspects of labour market behaviour; it is not limited to earnings and related information. For instance, the Government's preferred measure of unemployment (based on an internationally standard definition) uses LFS data - jobless respondents are asked whether they are available to start work and if they have looked for a job in the last four weeks. The ability to match gross pay details with other relevant labour-market variables is a major strength of the LFS, as is the fact that there is no cut-off for employees at the bottom of the earnings distribution.

  • Disadvantages: There are several drawbacks to gleaning wage data from households rather than employers. Official statisticians are unsure, for example, about the extent to which respondents refer to payslips when answering questions about gross earnings. People relying on memory may make mistakes. This is even more of a problem in the case of proxy respondents. Proxies exhibit a marked tendency to underestimate the earnings of their fellow household members, with the level of understatement depending on whether or not they are married to the individual concerned. There is also uncertainty about the extent to which LFS estimates of gross earnings include variable pay elements, such as bonuses.

    Watch this space

    Despite its problems, the LFS is the best official source of data available on earnings levels at the bottom end of the pay scale. Publication of LFS figures for the spring and summer quarters of 1999, due in August and November respectively, will provide the first opportunities to measure the extent to which employers are complying with the national minimum wage. By contrast, publication of the NES this autumn will leave us not very much the wiser. Readers should expect greatly increased interest in, and coverage of, the LFS wage figures in the months ahead.

    1     "Towards reconciliation of NES and LFS earnings data", Labour Market Trends, May 1998, available from the Stationery Office, tel: 0171 873 8499, price £7.50 (single issue), £70 (annual subscription).

    • Table 1: A pay specialist's comparative guide to the LFS and NES

    Labour Force Survey

    New Earnings Survey

    What is the survey base?

    Random sample of 65,000 UK private households. Information collected on employment and personal circumstances of everyone living in these households.

    Based largely on 1% sample of employees in pay-as-you-earn (PAYE) income tax schemes. Sample each year comprises all those whose National Insurance numbers end with a specified pair of digits. April 1998 figures based on 157,800 questionnaires.

    Are there any exclusions?

    People living in forms of accommodation other than private households - such as army camps, local authority homes and hospitals.

    The self-employed, the armed forces, private domestic-service workers, non-salaried directors, employees in Enterprise Zones, people employed outside Great Britain, people working for their spouses, and most employees earning below income tax threshold (£80.70 pw in 1998).

    How is information collected?

    Participants interviewed five times, at three-month intervals. Participation is voluntary - around 80% of households approached agree to participate.

    Inland Revenue supplies NI numbers, names and addresses of employers, and names of individual employees. Questionnaires in respect of individual employees sent to employers. Special arrangements for large organisations. Employer participation compulsory but in 1998 only 89.9% of questionnaires were returned.

    Who provides information?

    Members of households. Information about absent household members collected, by proxy, from the adult household member present (usually a relative). Around 30% of LFS data is collected by proxy.

    All information is provided by employers (not employees).

    What information is collected?

    Huge amount of data collected includes:

    Smaller range of data collected includes:

  • Employment details

  • Age, sex, marital status, length of time at current address, nationality, ethnicity, occupation, manual/non-manual, industry, public/private sector, employed/self-employed, trade union membership, when started current job and how it was found, redundancy (in previous three months), second-job characteristics, unemployment details, such as whether looking for paid work, reasons for not seeking work, characteristics of job search, education and training, including current qualifications, where highest qualification acquired, current study, apprenticeships, job-related training.

  • Age, sex, occupation, manual/non-manual, industry, public/private sector, geographical location of employer, whether on adult rates of pay, whether pay and conditions are affected by a collective agreement, employee's main pension arrangement.

  • Pay and hours

  • Working hours, full-time/part-time status, shift patterns, income details for main job and second job, including gross income, state benefits, occupational pensions and other income.

  • Earnings details, including total gross earnings for the relevant pay period in April (usually a week, four-week period or the calendar month), whether total gross earnings were affected by holidays/sickness/other absence, overtime earnings, bonuses and payments under piecework and other systems of payment-by-results, profit-related pay under Inland Revenue-registered schemes, shift premium payments, total gross annual earnings for the tax year ending April including additional payments for pension contributions but excluding amounts paid in respect of expenses, full-time/part-time status, normal basic hours and overtime hours.

    • What are the survey's main strengths?

    Large sample size provides statistically reliable results; wide range of data collected gives rounded picture of how people fit into labour market; meets international standards, facilitating cross-border comparisons; estimates of earnings link labour market behaviour with related financial rewards; and provides better source of data about the low paid than NES.

    Large sample size allows detailed breakdown of earnings for age groups, sex, industries, occupations and regions; earnings information provided from employers' records is more reliable than LFS respondents or proxies; and survey design allows for year-on-year comparisons based on a matched sample.

    How about weaknesses?

    Earnings information restricted to gross pay, and is not broken down into any further detail; proxy responses tend to understate earnings.

    Limited coverage of part-time employees with earnings below the income tax threshold - predominantly women with part-time jobs and young people.

    How are the results published?

    Three main print sources of LFS data are: l Labour Force Survey Quarterly Supplement - available from the Stationery Office, tel: 0171 873 8499;

    NES available only in print format. Six annual volumes (parts A to F) provide earnings data for Great Britain, seventh volume gives data for UK. Available from the ONS, tel: 01633 812078, price £25 (each part), £120 (parts A to F), and £130 (full set including UK volume).

  • Labour Market Statistics First Release - published monthly by the Office for National Statistics, tel: 0171 533 6107; and

    • Customised reports based on published and unpublished NES data from ONS, tel: 01928 792077, price variable.

  • Labour Market Trends - monthly ONS journal, available from the Stationery Office, tel: 0171 873 8499. Electronic sources of LFS data include:

  • SPSS MR (formerly Quantime Ltd) providing dial-up, on-line access to full dataset, tel: 0171 625 7222;

  • National On-line Manpower Information System (NOMIS), which contains selected LFS tables, tel: 0191 374 2468; and

  • ONS web site, which carries Labour Market Statistics First Release and other useful information, available at http://www.ons.gov.uk

    • Where can I get further information?

    ONS labour market statistics helpline, tel: 0171 533 6094(e-mail: labour.market@ons.gov.uk).

    ONS earnings information and analysis, tel: 01928 792077 (e-mail: derek.bird@ons.gov.uk).

    Table 2: Average gross earnings by occupation - examples from the Labour Force Survey1

    Autumn 1998

    Standard occupational classification (code)

    Job examples

    £ph

    £pw

    Catering occupations (62)

    Waiters and waitresses; and bar staff.

    4.13

    195

    Sales assistants and checkout operators (72)

    Sales assistants; retail cash desk and check-out operators; and petrol pump forecourt attendants.

    4.25

    184

    Childcare and related occupations (65)

    Nursery nurses; playgroup leaders; and educational assistants.

    4.63

    183

    Textiles, garments and related trades (55)

    Weavers; knitters; warp preparers, bleachers, dyers and finishers; sewing machinists, menders, darners and embroiderers; coach trimmers, upholsterers and mattress makers; shoe repairers, leather cutters and sewers; tailors and dressmakers; and clothing cutters, milliners and furriers.

    4.79

    196

    Domestic staff and related occupations (67)

    Domestic housekeepers; non-domestic housekeepers; caretakers; and launderers, dry cleaners and pressers.

    4.89

    194

    Receptionists, telephonists and related occupations (46)

    Receptionists; receptionist/telephonists; telephone operators; and radio and telegraph operators and other office communication system operators.

    5.17

    217

    Assemblers, lineworkers (85)

    Assemblers and lineworkers (electrical/electronic goods); and assemblers and lineworkers (vehicles and other metal goods).

    5.31

    232

    Food preparation trades (58)

    Bakers, flour confectioners; butchers, meat cutters; and fishmongers and poultry dressers.

    5.35

    243

    Food, drink and tobacco process operatives (80)

    Bakery and confectionery process operatives; brewery and winery process operatives; and tobacco process operatives.

    5.59

    255

    Stores and despatch clerks, storekeepers (44)

    Stores, despatch and production control clerks; and storekeepers and warehousemen/women.

    5.59

    244

    Road transport operatives (87)

    Bus inspectors; road transport depot inspectors; bus and coach drivers; taxi drivers, cab drivers and chauffeurs; and bus conductors.

    5.74

    291

    Woodworking trades (57)

    Carpenters and joiners; cabinet makers; case and box makers; and pattern makers (moulds).

    5.88

    266

    Filing and records clerks (42)

    Filing, computer and other records clerks; and library assistants/clerks.

    6.25

    252

    Secretaries, personal assistants, typists and word processor operators (45)

    Medical secretaries; legal secretaries; typists and word processor operators; and other secretaries and personal assistants.

    6.99

    262

    Numerical clerks and cashiers (41)

    Accounts and wages clerks, book-keepers and other financial clerks; counter clerks and cashiers; and debt, rent and other cash collectors.

    6.99

    268

    Metalworking process operatives (84)

    Machine tool operatives; metal polishers; metal dressing operatives; and shot blasters.

    7.52

    339

    Managers and proprietors in service industries (17)

    Property and estate managers; hotel and accommodation managers; travel agency managers; and publicans, inn keepers and club stewards.

    7.67

    335

    Social welfare associate professionals (37)

    Matrons and houseparents; and welfare, community and youth workers.

    7.91

    295

    Security and protective service occupations (61)

    Police officers (sergeant and below); fire service officers (leading fire officer and below; prison service officers (below principal officer); customs and excise and immigration service officers (below chief preventive officer); traffic wardens; and security guards and related occupations.

    8.20

    365

    Health associate professionals (34)

    Nurses; midwives; medical radiographers; physiotherapists; chiropodists; dispensing opticians; medical technicians and dental auxiliaries; occupational and speech therapists; and environmental health officers.

    8.94

    343

    NCOs and other ranks, armed forces (60)

    NCOs and other ranks UK armed forces; and NCOs and other ranks, foreign and commonwealth armed forces.

    8.94

    387

    Buyers, brokers and related agents (70)

    Buyers (retail trade); buyers and purchasing officers (non-retail); importers and exporters; and air, commodity and ship brokers.

    9.34

    387

    Managers in transport and storing (14)

    Transport managers; stores controllers; and managers in warehousing.

    9.63

    417

    Draughtspersons, quantity and other surveyors (31)

    Draughtspersons; building inspectors; quantity surveyors; marine, insurance and other surveyors.

    10.00

    420

    Literary, artistic, sports professionals (38)

    Authors, writers and journalists; industrial designers; actors, entertainers, stage managers, producers and directors; musicians; and photographers, camera, sound and video operators.

    10.35

    435

    Financial institution and office managers, civil service executive officers (13)

    Credit controllers; bank, building society and post office managers; and civil service executive officers.

    11.37

    445

    Natural scientists (20)

    Chemists; biological scientists and biochemists; physicists, geologists and meteorologists.

    12.61

    499

    Production managers in manufacturing, construction, mining and energy industries (11)

    Production, works and maintenance managers; managers in building and contracting; clerks of works; managers in mining and energy.

    12.72

    527

    Teaching professionals (23)

    Primary and secondary school teachers; further and higher education teaching professionals; and education officers and school inspectors.

    12.76

    466

    Engineers and technologists (21)

    Civil, structural, municipal, mining and quarry engineers; electrical and electronic engineers; software engineers; process and production engineers; and planning and quality control engineers.

    12.82

    501

    Business and financial professionals (25)

    Chartered and certified accountants; management accountants; actuaries, economists and statisticians; management consultants and business analysts.

    14.40

    559

    Protective service officers (15)

    Officers in UK armed forces; police officers (inspector and above); fire service officers (station officer and above); prison officers (principal officer and above); and customs and excise and immigration service officers (chief preventive officer and above).

    14.43

    645

    Specialist managers (12)

    Treasurers and company financial managers; marketing and sales managers; purchasing managers; computer systems managers; and company secretaries.

    14.63

    611

    Health professionals (22)

    Medical practitioners; pharmacists; ophthalmic opticians; dental practitioners; and veterinarians.

    14.90

    655

    Legal professionals (24)

    Solicitors; barristers and advocates; and judges and officers of the court.

    15.30

    605

    General managers and administrators in national and local government, large companies and organisations (10)

    Civil service assistant secretary (grade 5) and above; civil service higher executive officer to grade 6; local government officers (admin. and executive functions); and large-company general managers.

    16.89

    672

    All

    All

    7.92

    355

    1     Figures for gross hourly earnings include full-time and part-time employees. For gross weekly earnings, only information for full-time employees is included. In both cases, respondents with hourly earnings of £100 or more are excluded from sample. The grossed-up sample sizes within each occupational category are above the Office for National Statistics' new "publication threshold" of 30,000 for LFS earnings estimates. All figures are for men and women, autumn quarter 1998, United Kingdom.

    Source: Labour Force Survey.